Wednesday, March 4, 2009

When is paying out bonuses warranted?

Teams win and loose together. The worst player on the Steelers still received a championship ring while the best players on the Cardinals still didn't. Similarly, The workers on the few auto production lines that actually still have "decent" sales are suffering along with all the other employees that worked on the worst production lines, right? Regardless of a business having 10 or 10K employees, a bonus is supposed to be something that can be given out when the business is doing well and is therefore paid is from profits. Paying extras out when you're losing money isn't a very good business model.

A clear distinction should be made between a company that needed a bailout and one that did not. If the only reason you're still a solvent company is due to govt funds, "your bonus" is the fact that you still have a job because without the govt money you wouldn't have been receiving "a paycheck" (let alone a bonus) throughout the end of last yr and even currently... However, if you didn't need a bailout then pay out whatever you want (even though it's wrong to pay a bonus when you're not profitable). A good argument can be made against the bonuses that were paid in the yrs that excessive leverage and bad decisions were creating "false profits" as well (i.e. the claw back debate) but for this that's another conversation.

Monday, March 2, 2009

Obama's "Bottom up" vs. "Top down" stimulus?

Realistically, it's just as easy to argue for bottom up as it is for top down. People like to argue both sides of but it's sort of like the chicken & the egg argument and in reality we need both.

Bottom Up- Stimulating the lower 90 percentile (where most people reside) generates spending which equates to demand. That demand influences co's to hire more people and increase expenditures on growth and innovation. This can work tremendously well under the right circumstances when people are spending any extra money you give them. However, it won't work very well, if at all, when people are saving too much of what they're given due to a lack of consumer confidence. When this occurs, demand doesn't pick up and most companies won't increase spending or hiring. This is where we are now and why the January bottom up stimulus doesn't look promising for creating a timely economic recovery. People are just going to keep the extra money they get as a rebate and in their paychecks... People will spend less of their 09' rebate checks than they did with their 08' rebates and that's not good (for the economy at least). Yes, it's good for people to increase their savings from a personal budget point of view but if we're ever going to repay our increasing debt obligations we need to increase revenue. That's done with an expanding economy and we need that sooner than later.

Top Dn- Stimulating the top with tax breaks, credits, etc. can encourage companies to invest in growth & innovation which can create jobs and thus generate income that can be spent in the economy. However, "most" companies won't make those expenditures when there's no visible demand from the bottom. Some companies do spend when things look a little bleak because they believe they'll be better prepared for the eventual recovery. Currently, fewer companies are willing to do this because they realize people aren't going to be spending as much and there's a fear that this recession could last longer than a typical one.

--> Unfortunately, the stimulus package passed in Jan had too much bottom up and not enough top down. You have to blame whichever party is in charge for this happening and right now that's the democrats (led by Pelosi). They really needed to add more top down stimulus to balance the package and make it successful but they allowed the political "axe to grind" politics get in the way of doing what was needed for America. The republicans have done similar "axe grinding" things in the past but with what's at stake it sure would've been nice to see "SOMEONE" be the bigger person... Is Pelosi "really" the best person that could be picked to be "the leader”…? Good grief